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This. It takes time. It's all about the amount of damage you do. Once you start trading tributes though it gets harder and harder to keep the town sicne you dont have time to do more damage than enough to take over the town.
If possible, keep out of range of any Archers while torching the centre as, when the town falls to our rule, the place will have instant protection against marauding Dragons. Archers take a while to be created so the more we have in our villages and towns when they succumb to our will, the better.
Markets increase the value of the carts leaving the town, so you want to leave those. Taverns will spawn robbers, so you absolutley want to kill those, and the other building (the brown residenial buildings) are just wasted space that could be markets, so burn them.
It shouldn't take too long for the town to start fearing you.
You can only get villages to pay tribute if there are more than one dragon on the map. Once you have that part covered, it's pretty easy, just destroy every part of the town except for the town hall. Then, precede to return every once in a while to show them who's boss, which also makes sure that other dragons don't do more dmg than you, so they continue paying you instead of someone else
Of course, if you see a Thieves' Guild, burn away!